People get confused with budgets. Some people think it’s a crazy spreadsheet invented by accountants to make everyone else look useless.
Some people think it’s a set of rules to be gamed. Some people think it’s a column of figures which is 5% bigger than last year’s column of figures.
Some people think it’s a bank account, never to be overspent and always to be fully spent no matter the circumstances.
All of these are wrong.
A Budget is a collection of detailed policy statements covering your entire business, department by department, which you to translate into a set of working assumptions that drive a financial model. Thus Budgets require deep knowledge of how your business works and how it will react to a set of circumstances. By the way, when the circumstances change during the year (and they always do), recession, mergers, loss of major client, gain of exceptionally large client – you don’t revise the Budget, you produce a Revised Forecast to reflect the required new Policies.
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